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Thus the variable component of overheads is (250 X .2 = 50)% of direct labor costs.
4. Selling & administrative expense is 15% of sales (selling price for calculations per unit) of which, half is variable. Thus 7.5% of direct labor costs is variable.
We can make a table of contributions & profits for all three products as follows:
We know the constraints:
1. Max demand for A, B & C is 130,000, 50,000 and 50,000, respectively.
2. Departments 1 and 2 cannot exceed 67,000 and 63,000 capacity respectively.
3. To maintain loyal customers, we must supply at least 80,000, 32,000 and 12,000 units of A, B & C, respectively...
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